week 5 team capital budgeting techniquesscenario W r i t i n g
Respond to the following in a minimum of 175 words:
Time value of money is a financial concept that illustrates how the value of money grows over time. This takes into consideration that the money can be invested at a specified interest rate, that grows. One financial concept is present value (PV) and another financial concept is future value (FV).
- Discuss and show one example of how the present value formula is a good method to determine how much is needed to save monthly, in order to have a specified sum of money at retirement age in 25 years at 8% interest.
- Discuss and show one example of how the future value formula is a good method to determine how much of a lump sum is needed today, to invest for 25 years to reach a specified retirement amount, with 8% interest.
Reply to at least 2 of your classmates. Be constructive and professional in your responses.
Peer Response 1
The use of the present value formula is an excellent indicator on how much money one would need to save in order to reach an intended goal. Lets discuss for example that most people would like to retire at a specific age. For me I would like to done working by the age of 65. In order to reach a sustainable income for myself to live off of; I would need to use the present value formula in order to see what is a sufficient income to live off of and next how much I need to save each month in order to reach that goal. So in order to get a proximate calculation of that magic number needed, some assumptions would need to be made like how much longer one would be living. If I were to assume that I would live another 35-40 years longer then that’s almost another full life and continuing on as I have been living the first 65 years, I know that the remaining number would relatively need to be high. So if I wouldn’t to have $500K save by the time I reach 65 and with an interest rate of 5% on the money being saved the present value would suggest that I would present day would need to have roughly $25K save right now to reach that intended target.
With the present value formulate, it’s taking the origningal investment which in this case would be $500K and determining what it would eventually grow to be. Using the same intended goal of $500K for retirement and the future value formula with an 8% interest rate at 25 years the calculations would be as following.
= $610, 215.60 which the number that the initial investment of $500K will grow to be if untouched in 25 years.
Peer Response 2
Hello Professor & Class,
- Discuss and show one example of how the present value formula is a good method to determine how much is needed to save monthly, in order to have a specified sum of money at retirement age in 25 years at 8% interest.$29,204 (pv) /.08% x the 25yrs, will get m to the FV rate of $200k. Know what you are trying to be at within you time period is what will allow you to determine your FV. Knowing your PV first will help to contributing to these calculations
- Discuss and show one example of how the future value formula is a good method to determine how much of a lump sum is needed today, to invest for 25 years to reach a specified retirement amount, with 8% interest. If I was needing to have $200k within 25 yrs, it would be ideal to start with a specific amount right now to help me get to that savings. For example, $200,000 as the FV an then 25 yrs as the time period, at a discounted rate of 8%, the PV right now would be $29,204 that I would need to invest today.
Respond to the following in a minimum of 175 words:
Firms often make decisions that involve spending money in the present and expecting to earn profits in the future. Firms often need raise the financial capital to meet various needs that include projects, equipment, staffing, expansion, and more.
- Discuss the top three sources for companies to borrow money from, for a new building purchase, what are the typical lending interest rates, required collateral, and repayment terms at each of the three sources.
Week 4 Budget and Profit and Loss Statement
- Create a simple Profit and Loss Statement for the first two years of your dream company (HAIR SALON) following the income statement format. (This is to be created from scratch for the first two years of your own company, do not copy a company from the internet). (We will use this company next week to create a balance sheet and cash flow statement.)
- Explain how you calculated revenue for year one (I want to see the numbers you use) and then explain how it changes for year two.
- Explain how cost of goods sold (if required, service companies may not have COGS), and operating expenses (list all the accounts you use for expenses) are calculated for year one and explain changes for each account in order to report the year two numbers.
Analyze the revenue items based on information collected and make adjustments. The start for your income statement is calculating revenue.
Provide calculations and explanations for how you calculated revenue, cost of goods sold (if required), and operating expenses (show each expense) in a Word document of at least 350 words. The profit and loss statement can be included in your Word document or submitted in a separate Excel file.
Conduct an internet search for an income statement template or use the example located in the textbook as a template for your income statement. In Chapter 3, on page 45, in Table 3.2 you will find an example of a profit and loss statement or you can search the internet for an example. I will also provide an example of all three statements (income, balance sheet, and cash flow) to help you understand what we are doing the next two weeks.
Format assignment consistent with APA guidelines.
Week 5 Team Capital Budgeting Techniques
Scenario: A firm has projected free cash flows of $75,000 for Year 1, $100,000 for Year 2, and 125,000 for Year 3, $150,000 for Year 4, and 200,000 for Year 5. The projected terminal value at the end of Year 5 is $400,000. The firm’s Weighted Average cost of Capital (WACC) is 12.0%.
- Create a Microsoft® Excel® document to determine the Discounted Cash Flow (DCF) value of the firm based on the information provided above. Show calculations.
- Display your calculations.
Week 5 Balance Sheet and Cash Flow Statement
Purpose of Assignment:
The purpose of this assignment is for students to initiate and complete a comprehensive financial plan. The ultimate result will be a set of pro forma financial statements including an Income Statement, Balance Sheet, and Cash Flow Statement. The student will develop requisite assumptions about the dollar values to be budgeted. We will use the profit and loss statement you created in week four to create the first year balance sheet and cash flow statement for your company.
Assume this is the first year of your business and use the week 4 profit and loss statement from year 1 for the purpose of creating your balance sheet and cash flow statement.
- Create a properly formatted balance sheet addressing the instructor’s findings from previous class assignment by doing the following: Review the revenue and expense items based on comments made by the instructor, if any, from week four to best estimate realistic values for the balance sheet.
- Create a properly formatted cash flow statement addressing the instructor’s findings from previous class assignment by doing the following: Review the revenue and expense items based on comments made by the instructor, if any, from week four to best estimate realistic values for the cash flow statement.
- Conduct an internet search for or use an example located in the textbook as a template to create a properly formatted balance sheet and cash flow statement. I will also provide an example which was posted in class in week four and will repost in week five which shows all three financial statements with sample data and how they are connected and prepared.
- Explain the order in which the financial statements are prepared and how they are connected.
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